Retire on renewals + avoid self employment

[PCBI]

Lets say your renewals for the next 15 years is roughly 40,000.00 a year.
If u need 30,000. I know there are shelters like SEP IRA ect but will we still have the dreaded FICA and self employment nightmare even if we are retired? I was wondering if theres a way to turn our renewals into a pension form to avoid self employment fica taxation?

 

[PCBI]

basically if u retired today does all ur past renewals fall under self employment? or is there another way to make it a pension payment?

 

[JJ2713]

Lets say your renewals for the next 15 years is roughly 40,000.00 a year.
If u need 30,000. I know there are shelters like SEP IRA ect but will we still have the dreaded FICA and self employment nightmare even if we are retired? I was wondering if theres a way to turn our renewals into a pension form to avoid self employment fica taxation?

I'm not sure you can do so. The income was generated as "earned" income, therefore FICA applies, even if the income is being paid over time.

However, are you incorporated? Do you have a S-corp or LLC and treat it as an S-corp for tax purposes? With an S-corp, you only pay FICA with a salary/bonus, but not distributions (profit).

So, you pay yourself a small salary (FICA taxes), and the rest could be profit (no FICA taxes), within reason of course.

Not sure how this applies if the business was generated and you weren't incorporated and you try to incorporate afterwards.

Not 100% sure of course. Interesting question. Better to ask an accountant/tax advisor.

 

[PCBI]

looks like writeoffs and annuities and home offices deductions are the trifecta

PCBI, haven't seem you in a while... missed your bashing of MAPD... always found it quite funny... disagree with you of course... although I have a concern about the entire Medicare business as healthcare is a political issue...

back to your question...

I'm not sure you can do so. The income was generated as "earned" income, therefore FICA applies, even if the income is being paid over time.

However, are you incorporated? Do you have a S-corp or LLC and treat it as an S-corp for tax purposes? With an S-corp, you only pay FICA with a salary/bonus, but not distributions (profit).

So, you pay yourself a small salary (FICA taxes), and the rest could be profit (no FICA taxes), within reason of course.

Not sure how this applies if the business was generated and you weren't incorporated and you try to incorporate afterwards.

Not 100% sure of course. Interesting question. Better to ask an accountant/tax advisor.

 

[Allen Trent]

IRS regs state continued renewals or extended earnings must be reported by carriers on 1099 as "miscellaneous" income, just as is done while you are still producing. So, it is still considered business income & subject to FICA & self employment tax. Is retirement income from an insurance agent subject to social s... - Accountants Community

 

[PCBI]

i guess we keep paying till they run out

IRS regs state continued renewals or extended earnings must be reported by carriers on 1099 as "miscellaneous" income, just as is done while you are still producing. So, it is still considered business income & subject to FICA & self employment tax. Is retirement income from an insurance agent subject to social s... - Accountants Community

 

[Allen Trent]

i guess we keep paying till they run out

best to try to find a tax preparer that has worked with retired insurance agents that you might know. They may have experience and know of ways to offset by continuing to make retirement plan contributions or something. I have spoke to a few agents whose CPAs took the aggressive position & 1 court case or IRS ruling to not report it on a Schedule C. But they realized if audited they may have to pay. Many of the retired agents in the company I work for are irate when they file their 1st tax return because they believe the company should be issuing a 1099R like would happen for people with retirement accounts, but the agents don't realize it is mandatory by IRS--here is the verbiage I have from the IRS regs about former insurance agents (1st part is about extended earnings payments that many PC agents receive & bottom is more about life & annuity renewals


Insurance agent, former. Termination payments you receive as a former self-employed insurance agent from an insurance company because of services you performed for that company are not reported on Schedule C or C-EZ if all the following conditions are met.

• You received payments after your agreement to perform services for the company ended.
  
• You did not perform any services for the company after your service agreement ended and before the end of the year in which you received the payment.
  
• You entered into a covenant not to compete against the company for at least a 1-year period beginning on the date your service agreement ended.
  
• The amount of the payments depended primarily on policies sold by you or credited to your account during the last year of your service agreement or the extent to which those policies remain in force for some period after your service agreement ended, or both.
  
• The amount of the payment did not depend to any extent on length of service or overall earnings from services performed for the company (regardless of whether eligibility for the payments depended on length of service). (No—both our 50/50 & 5 yr do have length of service)
  
  
  Insurance agent, retired. Income paid by an insurance company to a retired self-employed insurance agent based on a percentage of commissions received before retirement is reported on Schedule C or C-EZ. Also, renewal commissions and deferred commissions for sales made before retirement are generally reported on Schedule C or C-EZ.
  
  However, renewal commissions paid to the survivor of an insurance agent are not reported on Schedule C or C-EZ.
  

 

[scagnt83]

Easy. Stay Employed and put it in a Pension Plan.

Defined Contributions Plans (401k/SEP/IRA/etc) do not avoid FICA/SET.

Defined Benefit Plans (Pensions/Cash Balance/etc) avoid FICA/SET.

However, it probably would not make much sense to put just $10k into a DB Plan. If you had a spare $50k then it would make a lot more sense.

 

[scagnt83]

The longer Im in this business, the more I do not see Renewals as my retirement income. Take the current VA issue with Ohio National. Lots of ways to get screwed on that residual income.

 

[Newby]

Agents who plan on retiring off their renewals are foolish. Especially senior market agents. Aren’t some of those customers that you sold older than you? Don’t the renewals end when the sigh up elsewhere or die? Do you want your retirement income to dwindle down each year you get older and less able to work your book?

If you think working your huge base of Medicare clients is “retirement” you are foolish. It’s hard work. And once you quit working it and stop working (really retire) it will definitely pay huge money into your retirement for a number of years. But it will get smaller every year. And eventually become minute.

Agents with brains retire right. They save for retirement. They sell themselves an annuity every year. Or they invest in the market. Or they buy rental properties. Or do something that makes sense so they can retire in style someday. Putting all your eggs in the “retiring off your renewals” or the even crazier one “retiring off building a down line” is fools gold.